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'Property prices are falling. Cut rentals to hold on to existing tenants'

21 July 2020 9:31 AM

South Africa has become poorer, says property economist Erwin Rode. If you force a tenant out, who will you replace her with?

Most shops and malls, though open, remain quiet.

Consumers are jobless and broke.

Many of those who remain employed are too fearful to spend.

Some of those willing and able to spend won’t risk infection.

  • Finding tenants in an economic depression will be extremely hard - will we see property owners having to lower their rentals so as to keep their existing tenants?

  • So many people are working from home – there are fully rented, yet near-empty office blocks everywhere – will companies decrease the amount of office space they rent or own?

Where are all the office workers? At home, working.

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Refilwe Moloto interviewed property economist and valuer Erwin Rode (Rode & Associates).

We must accept that South Africans have become poorer. Covid was just the cherry on the cake. The medium-term forecast for the economy is bleak.

Erwin Rode, property economist and valuer - Rode & Associates

Management [of Rode & Associates] did a very clever thing. They proactively wrote letters to their tenants, saying, ‘Listen, we’ll give you a discount for the next few months’. You won’t believe all the letters of gratitude we received! It was absolutely the right thing to do… If you insist on payment, that tenant will go bang. And who are you going to replace her with?

Erwin Rode, property economist and valuer - Rode & Associates

Landlords must also make a living… it could be a tricky thing… Thankfully… our banks are very conservative when lending money to landlords… So, gearing in South Africa is relatively low, so carnage has been limited.

Erwin Rode, property economist and valuer - Rode & Associates

We’ve all been losing wealth… must work out a pragmatic solution. It’s no use just insisting on the lease. If the tenant can’t afford it, what will you achieve? You’re going to drive her or him to the wall. Who are you going to replace them with? We all have to give and take.

Erwin Rode, property economist and valuer - Rode & Associates

Our banks are, quite rightly so, conservative… For commercial property, you’re lucky if you get a 60% bond… it’s a good thing…

Erwin Rode, property economist and valuer - Rode & Associates

The only thing that counts is cashflow, cashflow, cashflow… The landlord must decide, is this a viable company after Covid-19? … If you force a tenant out… how many new tenants can you get in a recession?

Erwin Rode, property economist and valuer - Rode & Associates

It’s already happening [very sharp fall in commercial property prices] … The valuation of commercial properties is all about the medium- to long-term prospects for the economy. We started off with an oversupply. Government debt is out of control… So, what do you expect will happen to the economy in the next few years?

Erwin Rode, property economist and valuer - Rode & Associates

Listen to the interview in the audio below.


21 July 2020 9:31 AM

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